Technically Speaking

Energy Complex Weakness Persists

Todd Hultman
By  Todd Hultman , DTN Lead Analyst
Connect with Todd:
RBOB gasoline futures probed the 38.2% retracement level Monday morning with additional support seen at the $89-handle area. (DTN ProphetX chart)

December Crude Oil:

Spot crude oil futures are back in the spotlight as the front-month contract probes the lowest prices since the end of May. Momentum indicators have collapsed, highlighting how incredibly weak this market has become. Some will be quick to point to the relative strength index (RSI) or stochastics and call crude oil overbought, but this would be an incorrect way of reading those indicators. RSI or stochastics can remain in overbought or oversold territory for weeks or even months. Instead, market observers should be looking for a divergence with price, which could be signaling a turning point for the current trend. At the present time, there is no such divergence occurring in crude oil, suggesting the current downtrend will continue. Spot prices have now pushed below the 50-, 100- and 200-day moving averages, something which is surely on managed funds' radar. Looking back to prior price action for possible support candidates, we see the corrective low from June 15 at $34.36, followed by the corrective low from May 28 at $31.14. Managed funds still hold a sizable net-long position of 297,661 contracts, which could be at risk with any further downside.

December RBOB Gasoline:

The other energy market of intense focus amid the resurgence of coronavirus cases has been gasoline futures. Like crude oil, gasoline futures have been under heavy pressure, trading to the lowest spot levels since the middle of May. Unlike crude oil, RBOB futures never traded into negative territory this past spring, making a technical read of this market slightly easier. Overnight trade has pushed below the 38.2% retracement of the entire $0.4605 to $1.3253 rally at $99.49. Looking at momentum indicators, we do not see any divergence with price just yet, suggesting the downtrend is solid and will remain in place during this week of trade. All major moving averages are above the market as one would expect. Another large area of support exists around 89 cents to 91 cents, which also coincides with the 50% retracement level at $0.8929.

November Ethanol:

The one energy market bucking the overall downtrend has been ethanol, which has paid more attention to rallying corn prices. While most energy contracts have been melting down, ethanol futures managed to hit the highest spot level since July of 2019 last week. Because of the thinly traded nature of ethanol, a close-only chart is needed to make definitive technical comments. With the resurgence of ethanol prices, the spot contract has put a fair amount of distance between itself and the major moving averages, which reside down at $1.21 to $1.36 per gallon. We would be a bit cautious about further ethanol strength, however, considering the at least interim correction in corn prices as well as the proximity of spot ethanol prices to the resistance at June/July 2019 highs. When ethanol futures reopen Monday morning, weakness is likely but support should be found between $1.45 to $1.50 per gallon.

Tregg Cronin can be reached at tmcronin31@gmail.com

Follow Tregg Cronin on Twitter @5thWave_tcronin

Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of grains and grain futures involve substantial risk and are not suitable for everyone.

Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of commodities or commodity futures involves substantial risk and are not suitable for everyone.

Comments

To comment, please Log In or Join our Community .